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Focus suit links woes to merger talks

In Focus Media's $100 million countersuit against Sears, Roebuck & Co. last week, the media buying shop claimed its problems with the retailer began last November when Focus was looking to be acquired by an agency holding company. According to industry executives, it was WPP Group that sought to marry Focus.

The revelation came as Focus counter-sued Sears for breach of contract and fraud. The countersuit responded to Sears' claims that Focus breached its contract by making slow payments to the media on the retailer's behalf (AA, March 20). Focus Media had been its agency of record for cable, syndication, local TV, local radio and Hispanic media for 12 years.

MERGER MADE SENSE

A merged Focus/WPP could have made sense. At the time, WPP's MindShare USA, Chicago and New York, had the network TV and network radio media buying assignment for Sears. Sears fired Focus on March 13 and awarded MindShare the bulk of Sears' media assignments once handled by Focus.

A WPP spokesman could not be reached for comment regarding the talks.

According to an affidavit filed by Tom Rubin, Focus chairman-CEO, Sears was informed of merger discussions conducted in November 1999 with an agency the affidavit didn't name. Perhaps not coincidentally, the talks came as Sears was launching a review to consolidate its massive media account.

In his affidavit, Mr. Rubin said Sears then wanted to change the terms of its deal with Focus. While Mr. Rubin didn't state specifically what the change was, he noted in the affidavit "the change that Sears wanted would frustrate that transaction."

Attorney Bert Fields, who is representing Focus, said part of the change included a waiver of a 12-month termination notice required by Focus should the retailer elect to change shops.

Mr. Rubin refused Sears' request. According to Mr. Rubin's affidavit, Sears then refused to make payments to Focus. As a result, he said, Focus stopped paying its Sears' media outlet bills for November 1999 through February 2000.

RESTRAINING ORDER

That led to Sears' suit against Focus for undetermined damages of not less than $3,597,902. Sears also received a temporary restraining order that froze Focus' bank accounts.

Mr. Rubin's affidavit said Sears' restraining order "bars us from paying out any Sears funds. But we have no `Sears funds.' We have no funds that are held in trust for Sears or are owned by Sears."

Currently, Focus is stuck with $20 million in outstanding media bills owed to TV stations, cable networks and print outlets since last November, according to court documents filed by Focus.

In the countersuit, Focus said that in November Sears made a "secret decision" to terminate Focus as its media buying agency. Perianne Grignon, director of media services for Sears, and David Selby, senior VP-retail marketing at Sears, were specifically named in the suit. Sears didn't return calls for comment at press time.

MARCH 28 HEARING

Crunch time for Focus comes March 28, when a hearing will be held in Los Angeles Superior Court to decide if that restraining order is to be made permanent -- a move which could force Focus into bankruptcy.

"I don't think [Mr. Rubin] is considering filing for bankruptcy," said Mr. Fields. But he added, "if he didn't have access to his bank account, if it becomes permanent, then he has got a problem."

Focus has major problems already. Media bills for former and present clients, including Universal Studios, DreamWorks Pictures, and King World Direct haven't been paid. Estimates are that Focus owes bills ranging from $3 million to $5 million for these accounts. Last fall, Focus lost Universal's $50 million local spot TV business, and in late 1998, DreamWorks Pictures' entire $90 million media account.